Daily ShareChat: Tower

Insurance premium income traditionally remains relatively defensive during economic slowdowns although the depth and longevity of the current recession could create significant headwinds for Tower, says Forsyth Barr analyst John Cairns.

Still, Tower is in a sound financial position and is making operational improvements across its three business units, general, health and life insurance and investment management, Cairns says.

It is upgrading its outdated insurance and health and life technology which will take two years and is expected to cost about $30 million and this is a prerequisite for the ongoing viability of those businesses.

"The big issue facing Tower is the lack of scale in its general insurance and investment management businesses," he says. Tower is continuing to seek both organic growth and acquisitions in these areas.

After a period of management changes and resulting funds outflow, Tower Investments has now stabilised and is now poised to pursue growth opportunities, he says.

The company is continuing to build on its underlying operational improvements in claims, expense and lapse ratios, Cairns says.

Cairns is forecasting Tower will report a $42.3 million net profit for the year ending September, a 4.4% increase on the previous year, followed by a $44.3 million profit in 2010.

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